It’s
Right Time:
It's just a few months to the end of the current financial year 2014-15. Now, it's time to plan and
start investing in instruments that qualify for a rebate in Income Tax. There
are certain investments and expenses that are exempt from income tax under the
Income Tax Act 1961. Assesses should plan their investment strategies carefully
in order to get a good deal in terms savings on income tax and returns from the
investments. Before briefing available options for rebate in tax, below are the
broad changes which are applicable from Assessment year 2015-16:
Changes at a glance:
1.
Taxable Income
eligible for full exemption from income tax is increased from Rs. 2 Lacs to Rs.
2.5 Lacs
2.
Additional deduction
of Rs. 50,000 under Section 80 C, CCC, CCD(1):
3.
Income Tax exemption
on Interest paid on housing loan under Section 24 of the Income Tax Act
increased from Rs. 1.5 Lacs to Rs. 2 Lacs
Now, below are some options to help you to reduce your tax liability:
Utilize Section 80C:
This section of the Income Tax Act allows
income tax exemptions for individuals on specified instruments. Section 80C offers a maximum
deduction of up to Rs. 1.50 Lacs. Investors can invest up to Rs 1.50 Lacs in one or
more of the specified instruments to avail a tax rebate under Section 80C. Utilize this section to the
fullest by investing in any of the available investment options. A few of the popular options are as follows:
- Public
Provident Fund
- Life Insurance
Premium
- National
Savings Certificate
- Equity
Linked Savings Scheme
- 5 year fixed
deposits with banks and post office
- Tuition fees
paid for children's education, up to a maximum of 2 children
Options
beyond 80C:
If
you have exhausted your limit of Rs. 1.50 Lacs under section 80C, here are a
few more options:
1.
Section 80D: Medi-claim Deduction
You
can claim tax benefits on a medical insurance scheme as well. This rebate comes
under Section 80D and enables you to claim a rebate on the money paid to buy a
medi-claim policy by any mode other than by cash. Deduction of Rs. 15,000 for
medical insurance of self, spouse and dependent children and Rs. 20,000 for
medical insurance of parents above 60 years is eligible for a tax exemption. Further, From AY 2013-14, within the existing limit a deduction of
up to Rs. 5,000 for preventive health check-up is available.
2. Section
80E: Deduction in respect of Interest on Loan for Higher Studies
Deduction in respect
of interest on loan taken for pursuing higher education is also available. The
deduction is also available for the purpose of higher education of a relative.
3.
Section 80G: Deduction in respect of
Various Donations
The various donations
specified in Sec. 80G are eligible for deduction upto either 100% or 50% as
provided in Sec. 80G
4.
Section 80GG: Deduction in respect
of House Rent Paid
Are
you paying rent, yet not receiving any HRA from your company? In this case, the
least of the following could be claimed under Section 80GG:
Deduction available
is the least of:
- Rent paid less
10% of total income
- Rs. 2000/- per
month i.e. Maximum Deduction available is 24,000/-
- 25% of total
income,
This deduction will however not be
allowed, if you, your spouse or minor child owns a residential accommodation in
the location where you reside or perform office duties.
5.
Section 80 TTA: Interest on saving
account:
Deduction
from gross total income in respect of any Income by way of Interest on Savings
account is available under this section. Deduction from gross total income of an individual or HUF, up to a
maximum of Rs. 10,000/-, in respect of interest on deposits in savings account
( not time deposits ) with a bank, co-operative society or post office, is
allowable w.e.f. 01.04.2012 (Assessment Year 2013-14).
Other
Available Exemptions on Allowances:
1. House Rent Allowance: (Section 10(13A)
If
HRA forms part of your salary, then the minimum of the following three is
available as exemption:
- The actual HRA received from
your employer
- The actual rent paid by you for
the house, minus 10 per cent of your salary (this includes basic
Plus dearness allowance, if any)
- 50 per cent of your basic
salary (for a metro) or 40 per cent of your basic salary (for non-metro).
2.
Tax Saving from Home Loans: (Section 24)
Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section
80C, offering a deduction up to Rs. 1.50 Lacs. The interest portion offers a
deduction up to Rs. 2 Lacs (limit amended from A.Y 2015-16) separately under
Section 24.
3. Medical Reimbursement: Clause (v) of the
Proviso to Section 17 (2)
Salaried individuals
can available a deduction of up to Rs 15,000 per year against medical
reimbursement. This deduction can be claimed if the employer pays medical
reimbursement as a component of salary.
Please
note that Medical Expense Reimbursement of Rs. 15,000 is over and above the
deduction under Section 80D of the Income Tax Act available
for Medical / Health Insurance Premium – Mediclaim Premium and this deduction is allowed
subject to providing proof of medical expenses.
4. Leave
Travel Allowance: Sec. 10(5)
Salaried persons can avail an income tax
deduction on travel expenses (family travel expenses can also be covered if the
family travels along with the taxpayer).Use
your Leave Travel Allowance for your holidays, which is available twice in a
block of four years. In case you have been unable to claim the benefit in a
particular four- year block, you could now carry forward one journey to the
succeeding block and claim it in the first calendar year of that block. Thus,
you may be eligible for three exemptions in that block.
Points
to be remembered:
1.
Invest Some Quality Time
Before investing your money, you need to
invest your time. You need to take some quality time to understand the various
tax saving options and compare their benefits and limitations. Therefore, it is important to start your tax planning well before 31st
March, and to file your returns before the 31st of July each year.
2.
Check for Future Commitments
Some tax saving
options like NSC or ELSS need only onetime investment. Some other tax saving
options like PPF, ULIPs need periodical investments year after year. You need
to be careful in choosing a tax saving scheme where you need to commit for
periodical future payments. You need to check on a few things like; do you need
such a future commitment? Will you be able to meet the future commitments at
ease? The law may change and you may not get any tax exemption for your future
payments. Would you consider the scheme irrespective of tax benefit for the
future payments?
3.
Prevent Excess deduction & Documentation
Give
your employer details of loans and tax saving investments beforehand, to
prevent any excess deduction. Further, we should check the Form 16 received at
the end of each year from your employer thoroughly.
4.
Changed Your Job? It’s time to Redo Your Tax Plan
Did you switch your
job in the middle of the financial year? Then you need to redo your tax plan
with consolidating the income from both the companies. It is advisable to
inform the new company about the income during the particular financial year
from the old company. So that your new company will deduct the right amount of
TDS.
A
Final Word:
Keep
in mind the above points, to avoid the hassles of last minute tax planning. With proper tax
planning you can reduce your tax
liability, save more, invest
better and become wealthier.
Disclaimer:
The information
contained in this write up is to provide a general guidance to the intended
user. The information should not be used as a substitute for specific
consultations. Authors recommend that professional advice is sought before
taking any action on specific issues.
Author of this article is Harsha Ramnani. She is practicing Chartered Accountant. She can be reached at harsha.ramnani01@gmail.com
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